Updated: OpenAI Board Fires Sam Altman as CEO for Not Being "Consistently Candid", but He Might Return

CTO Mira Murati serving as interim CEO, but board is negotiating Altman's return

Editor’s note 11/20/23: This is a very in-depth piece but it may be confusing to follow as the information was updated several times. You might prefer to start with the update that includes a chronological timeline of events and then return here for added context. Future updates will be made to that post, and this one will stay as it is.

Editor’s Note (11/17/23 10:00 pm EST): This is a developing story. The resignation of Greg Brockman reinforces our confidence level in the original thesis that this was precipitated by inadequate disclosure of operational or product information or driven by a conflict of interest. And it may lean more toward a disagreement over strategy combined with a disclosure issue.

Editor’s Note 2: (11/18/23 11:30 am EST): Bloomberg reported that the ouster was led by Ilya Sutskever, a company co-founder and chief scientist, and centered on a disagreement over how quickly to commercialize the technology and steps related to ensuring it does not impact “safety.” Safety is one of those great words that means something different to everyone, so it can drive alignment around rallying around a term until the messy details need to get ironed out.

If you were also wondering whether there was a money or power angle, Bloomberg added, “Alongside rifts over strategy, board members also contended with Altman’s entrepreneurial ambitions. Altman has been looking to raise tens of billions of dollars from Middle Eastern sovereign wealth funds to create an AI chip startup to compete with processors made by Nvidia Corp., according to a person with knowledge of the investment proposal. Altman was courting SoftBank Group Corp. chairman Masayoshi Son for a multibillion-dollar investment in a new company to make AI-oriented hardware in partnership with former Apple designer Jony Ive. Sutskever and his allies on the OpenAI board chafed at Altman’s efforts to raised [sic] funds off of OpenAI’s name, and they harbored concerns that the new businesses might not share the same governance model as OpenAI, the person said.

Editor’s Note 3: The Information reported last night that three senior researchers resigned following the dismissal of Sam Altman, followed by Greg Brockman’s resignation. The Verge is now reporting that a larger group of OpenAI staffers planned to resign this evening if Altman was not reinstated as CEO and that the board was negotiating with him about returning to the role he inhabited just 36 hours ago. However, the board has already missed an important deadline, so the current status is unclear.

In addition, the planned share sale to investors at the $86 billion valuation is now in jeopardy, according to The Information.

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Sam Altman is now the former CEO of OpenAI. In a blog post published two hours ago, the company announced that Altman will “depart as CEO and leave the board of directors. Mira Murati, the company’s chief technology officer, will serve as interim CEO, effective immediately.”

It would not be surprising if the CEO and co-founder of a globally recognized company valued in the tens of billions of dollars like OpenAI, which has been a pressure cooker to lead, decided to claim victory and move on to a new chapter in their life. You also wouldn’t be surprised to hear that CEO say they wanted to spend more time with their family or pursue new goals.

This scenario could arise from the person’s own intentions or be initiated by an unhappy board of directors and investors. In the latter case, the board typically moves to install new leadership and let the executive depart gracefully. This approach serves many purposes. One of those purposes is that it provides an outward sense of harmony and is reassuring to investors, partners, customers, and other stakeholders.

This is not what happened today. OpenAI took the unusual step of indicating that the board forced Altman’s departure for misleading it. According to the announcement:

Mr. Altman’s departure follows a deliberative review process by the board, which concluded that he was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities. The board no longer has confidence in his ability to continue leading OpenAI.

What Happened?

There are many reasons executives are asked to depart companies. A short list includes:

1. Disagreement over strategy and management

2. Failure to meet objectives

3. Misrepresentation of information

4. Inappropriate behavior

5. Conflict of interest

6. Malfeasance

Strategy Disagreements or Failure to Meet Objectives (1&2)

While the first two reasons are possible, they originally seemed unlikely. The company is riding high on market adoption both for its foundation models and applications, such as ChatGPT. The new no-code custom ChatGPT apps called GPTs have been so popular that the company had to stop accepting subscription sign-ups. Update: With that said, it has come to light that a conflict around strategy related to alignment and AI safety was percolating. There is speculation that OpenAI has made a new technical breakthrough that worried some board members from an alignment perspective, but Altman and Brockman were moving forward with integrating it into the product. Sutskever, according to Bloomberg’s reporting, was displeased.

Comments by Sam Altman at the Cambridge Union two weeks ago may support this theory. In response to an audience question about the path to artificial general intelligence (AGI), Altman commented:

I think we need another breakthrough. I think we still we can push on large language models quite a lot and we should and we will do that. You know, we can take our current the hill that we're on and keep climbing it and like the peak of that is still pretty far away but within reason. I mean, you know, if you push that super, super far maybe all this other stuff emerged. But within reason, I don't think that will do something that I view as critical to an AGI.

To stick with that example from earlier in the evening in physics, let's use the word super intelligence now; if super intelligence can't discover novel physics, I don't think it's a super intelligence. And training on the data of what you know, teaching [it] to like clone the behavior of humans and human text, I don't think that's going to get there. And so there's this question which has been debated in the field for a long time of what do we have to do in addition to a language model to make a system that can go discover new physics and that'll be our next quest.

In addition, Sutskever was recently relieved of some responsibilities. “A month ago, Sutskever’s responsibilities at the company were reduced, reflecting friction between him and Altman and Brockman. Sutskever later appealed to the board, winning over some members.” Altman and Brockman must have either initiated or approved the changes to Sutskever’s role.

Misrepresentation of Information (3)

Misrepresentation of information is likely and fits nicely with the announcement statement. “He was not consistently candid in his communications with the board.” This is also among the least incendiary of the remaining reasons on our list. Granted, there is a spectrum of impact that comes from less-than-candid communications. If this is the root cause, the nature of the issue must have been significant to warrant the dismissal and the statements above. However, it may be there was a misrepresentation combined with other issues on our list. New reporting suggests the misrepresentation may have been a pretext for taking an action that was actually driven by differences around strategy and a healthy mix of bruised egos.

Inappropriate Behavior (4)

There could also be an issue with inappropriate behavior toward employees, customers, or other company stakeholders. This, combined with misleading or incomplete information, would be a fairly common pairing. Though, again, would the company take the step of acknowledging Altman’s contributions if there was a clear-cut issue that could fall under labor law? This seems unlikely.

Conflict of Interest (5)

Conflict of interest is another potential problem. The Verge mentioned that Altman is the largest shareholder in Humane, the AI-fueled pin that some people hope will be the successor to the iPhone. However, Altman was president of Y Combinator for several years and surely has investments in many companies that could present an active conflict of interest.

Malfeasance (6)

Malfeasance would be troublesome. The company is already under scrutiny by regulators and is the defendant in legal cases. A whiff of legal wrongdoing or regulatory violations would undermine its growth as potential customers consider the implications. However, I think this is unlikely.

The statement from the board of directors said, “We are grateful for Sam’s many contributions to the founding and growth of OpenAI. At the same time, we believe new leadership is necessary as we move forward.” I would not expect even this tepid of a compliment to emerge if OpenAI thought it was in legal peril.

Update 11/18/23, 10:00 pm: We can very likely strike this one off the list. The New York Times reported, “Brad Lightcap, an OpenAI executive, told employees on Saturday morning that the company had been talking with the board to ‘better understand the reason and process behind their decision,’ according to an internal message I obtained.

“‘We can say definitively that the board’s decision was not made in response to malfeasance or anything related to our financial, business, safety or security/privacy practices,’ he wrote. ‘This was a breakdown in communication between Sam and the board.’”

The Verdict

Of course, there are other potential reasons. My guess is that 3, 4, or 5 or some combination of those reasons led to the dismissal, with 3 and 5 the most likely. It was serious in the eyes of the board to warrant dismissal and the explanation. But they followed a “deliberate process” and offered a departing “thank you” in the statement. In addition, Altman’s post on X (i.e., Tweet) a few minutes ago expressing gratitude suggests he is not worried about any ongoing issues. New reporting suggests 1 was a key motivator, with 3 and 5 used as pretexts for taking action. But, more information may still be revealed.

Update 11/18/23, 12:00 pm: This is looking more and more like the fracas was fueled by ego, grudges, and differences of opinion. This misrepresentation of information charge and the rumored conflicts of interest may have seeds of truth, but they may also be pretexts for the more banal motivations of control and retribution.

How Will This Impact OpenAI?

So, how will this impact OpenAI? Mira Murati, the interim CEO, is about to host an all-hands meeting for the company. According to The Information:

Employees may be concerned about the company’s future fundraising prospects and an ongoing tender offer, which hasn’t closed, in which some employees are selling stock to Thrive Capital and other investors.

How this impacts staff is the first thing to consider. Generative AI companies are in a constant war for talent, and if the disruption leads to departures, it could undermine the company’s growth plans as demand is ramping up. I suspect it will not have a near-term impact as most of the employees didn’t report to Altman, and many will be waiting for the next funding round so they can cash in their shares. Liquidity is a bigger motivator than management turnover at this point.

Update 11/18/23: The immediate departure of three senior researchers and the threat by many current staffers to leave if Altman and Brockman are not reinstated suggests that the talent drain risk is an actual crisis.

Greg Brockman’s removal from the board chairman role could be more significant, though he is remaining with the company in his current executive role. Brockman is much closer to the development team and has been lauded for his efforts around technology and product leadership. If he becomes marginalized, it could have a more direct impact on product delivery.

Update 11/17/23: Shortly after this post was published, Brockman revealed that he had quit after learning of the board’s actions. This increases the likelihood that there will be issues on the product side. It is also puzzling that the announcement indicated Brockman would remain with the company. That isn’t a minor detail. It’s possible Sam’s actions involved covering for something under Brockman’s authority. Or, it could be a good old-fashioned internal struggle for control over the company and its strategy.

Update 11/18/23 12:00 pm: The talent drain potential is much higher now that Altman and Brockman have left, and there is a growing belief that there was no wrongdoing on either executive’s part. Once the employees get liquidity for their options, you might see several of them departing to join Altman or Brockman in a new startup.

Update 11/18/23 9:00 pm: In fact, the talent drain has already started. Three key researchers resigned later Friday night and many more are expected to leave the company Saturday unless the board reverses its decision. If this is not resolved quickly, the company could be a shell of its former self by Monday. That will have profound ripple effects across the industry. The board is reportedly in discussions with Altman about returning. The terms would likely include the resignation of the current board members.

Another key The bigger issue will be losing a now widely recognized CEO who has proven skillful in interacting with everyone from investors and customers to the media, politicians, and regulators. His successor, whether Murati or another executive, will be starting over in building those relationships and skills. I’m not sure Eric Schmidt would take the job, but bringing in someone like him for a period of time might fill this gap effectively and calm any uncertainty that may arise.

From an investor perspective, there may be some challenges because Altman was a masterful salesman regarding the value the company would create. The most important OpenAI investor and partner, Microsoft, has publicly affirmed its commitment to the company. In response to The Verge, a Microsoft spokesperson said, “We have a long-term partnership with OpenAI, and Microsoft remains committed to Mira and their team as we bring this next era of AI to our customers.”

Update 11/18/23, 12:00 pm: However, Bloomberg reports that Satay Nadella was displeased. “Executives at Microsoft Corp., the largest investor in OpenAI, were also taken by surprise. Microsoft CEO Satya Nadella was ‘blindsided’ by the news and was furious, according to someone with direct knowledge of his thinking.” Fundraising may be more difficult now. Who from OpenAI’s side is going to structure the deal?

Update 11/18/23, 9:00 pm: OpenAI’s board has likely lost credibility with investors. There are options other than bringing back Altman as CEO, but it is hard to see the company in a position to raise additional funding based on the current reaction.

The Information also reports that existing investors are the key force behind engineering Altman’s return.

Tiger Global is part of an investor group that is pushing to get OpenAI’s board of directors to reinstate Altman, according to a person familiar with the matter. Separately, Sequoia Capital has been talking to Altman about next steps, including a potential return, said a second person. The firm has also been encouraging executives at Microsoft, OpenAI’s largest backers, to help engineer their return, according to the person.

If a big problem emerges, you can expect Microsoft to swoop in and acquire the rest of the company’s outstanding shares. Satya Nadella said this week of Microsoft, “We are the Copilot company.” He could have added, “built on OpenAI foundation models.” Microsoft is all-in. They are not going to swap out GPT-4 for Anthropic anytime soon. Investors such as Sequoia and Tiger Global may or may not significantly influence the board’s decision-making process, given how the organization is structured. Microsoft surely would.

As to customers, I think they will barely notice. Most of the larger customers were comforted by Microsoft’s big financial and product commitment to the company. Customers will stick around as long as nothing breaks, and OpenAI handles upcoming regulatory and reputational issues reasonably well. Consumers don’t know who Sam Altman is.

Update 11/18/23, 9:00 pm: This has become a bigger risk now that a large portion of the OpenAI staff has threatened to quit.

How Will This Impact the Generative AI Market?

Unless OpenAI collapses because Altman’s leadership was somehow unique, I don’t expect this to have any ripple effects on the industry. The product category and products are bigger than any single executive. Note: I still believe this even with the new information. However, I see OpenAI as less likely to become a dominant force unless new leadership emerges that can create as forceful a market presence as Altman and Brockman.

Altman has appeared from the outside to be an impressive leader and effective communicator, but it is not clear he is a generational talent like Steve Jobs or Elon Musk. He may turn out to be in that category, and he may do something impactful in generative AI as a second act, but right now, the technology platform is driving interest and adoption.

The departure may even be good for the industry. Altman has been an effective spokesman for the technology in many ways and has helped stoke enthusiasm both among consumers and enterprises. However, his focus on the pursuit of AGI and messaging around cataclysmic generative AI risk may be causing a misallocation of attention and resources. Of course, Altman’s reported plans to now create a new company in the space could lead to more competition, which likely would help move the industry along more quickly.

Satya Nadella’s focus on applied AI and copilots is more constructive, emphasizing delivering tangible value to users. He is actually the most effective generative AI advocate and is trusted as highly competent and sensible.

This is a big story because OpenAI is an important company. But the holidays are coming up. Unless we hear about legal trouble, the frenzy will die down quickly. With both Brockman and Altman leaving, you can assume some deceleration in the business even if, a year from now, OpenAI is far larger than today.

Update: 11/18/23, 12:00 pm: OpenAI is in a market that requires a wartime CEO to succeed. It is unclear at the moment whether Altman has just been replaced with a peacetime CEO when the company is still fighting the war. If so, expect turmoil to emerge before calm or the next market offensive. At some point, Sam may even be invited back. Then, your Jobs analogies will have more fodder for the argument.

Update: 11/18/23, 9:00 pm: Altman has been invited back, but the terms are still being negotiated, and it may fall apart.

What do you think? Let me know in the comments.